Home Sweet Home: Home Bias and International Diversification Among Individual Investors

Posted: 20 Apr 2007

See all articles by Anders Karlsson

Anders Karlsson

Stockholm University - Department of Corporate Finance

Lars L. Norden

Stockholm University - Stockholm Business School

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Abstract

A striking feature of international portfolio investment is the extent to which equity portfolios are concentrated in the domestic market of the investor. We investigate differences in home bias on an individual level by studying portfolios formed as a part of the new defined contribution pension plan in Sweden. We estimate the likelihood of home bias and use individuals' demographic and socioeconomic features as explanatory variables. Our findings indicate that the likelihood of home bias is caused by both rational and irrational factors. Moreover, we relate home bias to investors' desire to hedge against inflation, sophistication and overconfidence.

Keywords: Home bias, Individual investors, Defined contribution pension plans

JEL Classification: G11, G15, G23

Suggested Citation

Karlsson, Anders and Nordén, Lars L., Home Sweet Home: Home Bias and International Diversification Among Individual Investors. Journal of Banking and Finance, Vol. 31, 2007. Available at SSRN: https://ssrn.com/abstract=981220

Anders Karlsson

Stockholm University - Department of Corporate Finance ( email )

School of Business
SE-106 91 Stockholm
Sweden
+46 8 162180 (Phone)
+46 8 153054 (Fax)

Lars L. Nordén (Contact Author)

Stockholm University - Stockholm Business School ( email )

Sweden

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